This Notice is being issued to provide Participants with information on the Adjustment implication for TAH ETOs.

ASX Participants and ASX Clear (ASXCL) Participants are advised that Tabcorp Holdings Limited (ASX Code: TAH) announced a pro-rata accelerated renounceable entitlement offer on 19 August 2020. The shares will be in a 3-day trading halt from Wednesday 19 August to Friday 21 August 2020, and will resume trading ex-entitlement on Monday 24 August 2020.

The entitlement offer is 1 new share for 11 shares held on record, at a price of $3.25 per share. The new shares will rank equally with existing ordinary shares from their time of issue. Participants are advised to refer to the company’s announcements for full details and timetables for the institutional and retail offers.

Summary:

-       TAH ETOs expiring on Thursday 20 August 2020 will be opened for trading between 2pm and 4.20pm under a UA basis.

-       TAH contracts expiring on Thursday 20 August 2020 will be adjusted after-market close using a different methodology to all other series.

-       TAH ETOs which do not expire on Thursday 20 August 2020 will be opened for trading on Monday 24 August 2020 on a UA basis and will be adjusted after market close.

-       ASX recommends that all participants turn-off auto-exercise on Thursday 20 August 2020 as the auto-exercise will be based on the last traded price of TAH from 18 August 2020 and the adjusted strikes.

Separate Adjustments for Expiring Series, UA Trading

ASX has consulted with ASXCL in relation to the trading halt occurring over the August 2020 ETO expiry day. ASX will determine separate adjustments as appropriate given the circumstances using ASX Operating Rule [2230] Adjustments, Appendix 2230 Procedure 10 Alternative Adjustments.  Participants are advised that August 2020 expiring series will be adjusted using a “built-in exercise method” so that the new contract size and the new strikes will reflect the offer taken up as shown in Table 2 below. Trading in these expiring series will be on a UA basis from 2.00 pm to 4.20 pm on expiry day.

All other TAH ETO expiries (Non-August 2020) will remain in trading halt until Monday 24 August 2020 and will then be traded on a UA basis, to be adjusted by the usual method on Monday 24 August 2020, referencing the ex-entitlement VWAP of the shares.

Table 1: Key indicative timetable aspects (from the TAH ETOs implications perspective):

Notes:

Participants should inform their clients especially retail clients - of the issues relating to rights-style ETO adjustment for entitlement issues, in relation to trading of ETOs on the ex-entitlement day.

1) Expiring series during trading halt: Participants are advised that the adjustment to the expiry series becomes effective on expiry day while trading of these expiring series will be on an adjusted basis (“UA” Under Adjustment flag). For the expiring series only, the full extent of the adjustments is published in this notice.

2) Non-expiring series: As with any rights-style market value based adjustment, Participants are advised that the adjustment becomes effective on the commencement of ex-entitlement trading of the underlying shares. However, while any ETO trades entered into after the resumption of trading will be on an adjusted basis (“UA” Under Adjustment flag), the full extent of the adjustments will only be published after VWAP has been determined by ASX after close of trading.

Table 2: Adjusted TAH August 2020 Expiring Series (UA trading basis)

The adjustment to the expiry ETO series becomes effective on the commencement of the expiry day trading window on Thursday 20 August 2020 when the underlying security still under trading halt.

Any TAH ETO trades in expiring series from 2pm – 4.20 pm will be on an under adjustment basis (trade status “UA”). The adjustment will apply regardless of whether the “market value” of the rights is positive or negative.

Participants are strongly advised to note that the cost of exercise has increased by 1/11 * 100* $3.25 = $29.55 per contract and the number of shares to be delivered has increased from 100 to 109.0909 rounded to 109.

The table above was calculated in accordance with the adjustment formula for the Expiring Series only (with negligible time value) as follows:

TC = OC + n

where

TC = theoretical new contract size (rounded to 4 decimal places) which is used in intermediate calculations

OC = old contract size

n = the number of entitlements ("rights”) attributed to each OC determined by the issue ratio applied to the old contract size OC assuming the full entitlement is taken up (subscribed)

The new strikes are calculated as the Total Exercise Cost Built-In divided by the Theoretical New Contract Size as follows:

New Strike = (OC * Old Strike + n * (C +d))/ TC

where

d = ordinary dividend or distribution that new securities are not entitled to compared to existing securities

C= consideration paid to exercise the implied rights (i.e. entitlement or subscription price)

To illustrate.

The existing contract size is 100. Issue is 1 for 11 entitlement offer at $3.25.

The adjusted contract size using the built-in exercise method for the expiring August 2020 series is 100 +1/11*100 = 109.0909 rounded to 109

Suppose the old strike price for an expiring series =$4.00

new strike price = total exercise cost/ new contract size

Total exercise cost built-in =

100 * $4.00 + 1/11*100 * ($3.25+$0) = $400.00+$29.55= $429.55

So, the new strike = $429.55/109.0909 =$3.9375 = $3.94 rounded to the nearest 1 cent.

For the purpose of the cash equalisation adjustment payment, the percentage of the calculated contract size that was truncated was determined by ASX to be:

(TC-NC)/TC = (109.0909-109)/109.0909 = 0.083325% to six decimal places in the percentage figure.

For the treatment of cash equalisation adjustments for expiring options, see Derivatives Notices 042/13 dated 15 July 2013.

Usual Adjustment Method for Non-Expiry Series

The usual rights-style adjustment treatment will be applied by ASX to non-August 2020 expiring series on Monday 24 August 2020.

New contract size is calculated as follows:

TC = OC + n*r/S

Where

TC       = theoretical new contract size (prior to any rounding) which is used in intermediate calculations

OC       = old contract size (currently 100)

n          = the number of entitlements or rights attributed to each OC determined by the issue ratio (1/11 *100)

r           = the market value (whether positive or negative value) of the each entitlement or right as determined by ASX, calculated as: S - d - C where:

S  VWAP ex-entitlement of existing shares on the first day of trading ex-entitlement that the ETOs have also resumed trading (Monday, 24 August 2020), using the volume-weighted average price on ASX market.

d = ordinary dividend and special dividend for which the new shares are not entitled to (d=$0)

C = consideration paid to exercise the implied rights (i.e. offer entitlement price) (C=$3.25)

Participants should be aware that there are certain market conditions that can lead to a negative value for ‘r’.  A negative ‘r’ used in the calculation above will create an adjustment where the contract size is adjusted downwards and the exercise price is adjusted upwards.  Please see the example of Arrium Limited “ARI”.

The new strikes are calculated as follows:

NS = OS * OC/TC

Where

OS = Old Strike

NS = New Strike

For the strike calculations, the theoretical new contract size (TC) used by ASX is rounded to 4 decimal places, and the strike factor (OC/TC) is rounded to 6 decimal places.

ETO Cash Equalisation Adjustment Payments for Contract Size Roundings

Participants should refer to Derivatives Notices 050/13 dated 14 August 2013, 042/13 dated 15 July 2013 and update 045/13 dated 17 July 2013 “ETO Cash Equalisation Adjustments for Contract Size Roundings” This is applied for all adjustment events effective 26 August 2013.

The cash adjustment payments will be posted by ASXCL as close as practicable to the effective adjustment date. For clarity, ETOs are LEPOs and non-LEPOs (ordinary options, American or European). Takers will be credited and writers debited a cash equalization payment for any contract size rounding calculations. (For share consolidations, it is possible for a LEPO taker to be debited if the LEPO strike is standardized back to 1 cent after initial rounding).

Where the old contract size of a series before an adjustment is 100, ASX will apply a standardizing “TMC threshold” so that if the calculated theoretical new contract size falls between 100 and to up to but not including 102, the theoretical new contract size will be truncated to the standard 100, and a cash equalisation adjustment payment made.  If the calculated theoretical new contract size falls above 102, then the theoretical new contract size will be truncated down to the nearest whole number, with a cash equalisation adjustment payment made.

OTC series (where any)

Clearing Participants are advised that any OTC series cleared by ASXCL under the ASX Equity OTC Clear service will be adjusted using the same formula as the ETOs as shown in this Derivatives Notice.

OTC series will be adjusted along with ETO adjustments on the night however, to maintain anonymity; the adjusted OTC series details will not be published in the Derivatives Notice but will be available to CPs the following morning via their own clearing systems.

ETO exercise restrictions (where any) in relation to an adjustment may occur during the period of 10 business days prior to and including expiry, will also apply to OTC series. However such exercise restrictions will not apply on expiry day of an OTC.

Specific Cover

Participants are advised that as the contract size is changing, arrangements may need to be made for additional lodgement of underlying shares to account for any collateral denoted as specific cover.

What do I need to do by when?

Participants should be aware of the content of this Notice as it sets out the treatment of the accelerated Renounceable Entitlement Offer with respect to open positions in ASX TAH ETO contracts.

Autoexercise of Expiring Series Not to be Used

Participants should actively take measures to discontinue the use of the Autoexercise facility for the August 2020 expiring series. The autoexercise facility will use the prior day’s closing price as the reference price ($3.67) to determine exercise. This will not be an accurate reflection of the potential market price as the underlying security is in trading halt on expiry day.  In addition, the auto-exercise will be based on adjusted strikes.  

Participants may wish to consider estimating a theoretical ex-price for themselves based on last closing price or alternatively an implied share price from trading (where any) in the expiring options during the ETO reopened trading window. Nevertheless, Participants are advised to have regard to whether exercising is appropriate given the extra information about the company as well as general market conditions that has become available since the shares last traded. 

ASXCL and ASX do not accept responsibility for any exercises resulting from use of the Autoexercise facility.

Exercises Restrictions

Exercises of TAH ETOs are immediately restricted from Wednesday 19 August 2020 after the announcement of the entitlement offer.

The exercise restrictions are lifted in two phases: firstly, on Thursday 20 August 2020 for August 2020 expiring series only, and secondly, on Tuesday 25 August 2020 for the non-expiring series.

All exercises in TAH ETOs after the offer announcement will immediately involve delivery of ex-entitlement securities, regardless of when the shares are scheduled to resume trading on an ex-entitlement (or ex-rights) basis.

Listing Restriction

A listing restriction was applied from Wednesday 19 August 2020. The listing restriction will be lifted on Tuesday, 25 August 2020, at Start of Day.

Effective Date

A further notice will be issued after the close of business following the resumption of trading of the underlying securities on an ex-entitlement basis, Monday, 24 August 2020. The notice will detail the adjusted contract size and adjusted strikes for non-August 2020 series. Participants are reminded that trading on the ex-entitlement day will be on an “under adjustment” basis (UA trading) and effective that day, notwithstanding the adjusted specifications are published by ASX only after close of trading.

Need more information?

Issued by

Brendan Laird, Senior Manager Settlement Operations

Contact information

Cheng Zhang
1800 814 051
chesshelp@asx.com.au

Disclaimer